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MUMBAI : In a major relief to the medium and small enterprises sector, the RBI on Wednesday said GST-registered MSME borrowers will get a further 180-day window to pay dues if their accounts were standard as on August 31, 2017.

This move, allowed to banks and NBFCs, will be applicable for dues between September 2017 and January 2018 if the aggregate exposure does not exceed Rs 25 crore. Banks and NBFCs will not be required to downgrade asset classification of these MSMEs.

“To support their transition to a formalised business environment, it has been decided that for GST-registered MSMEs, which were standard as on August 31, 2017 and for which the aggregate exposure of banks and NBFCs does not exceed Rs 25 crore as on January 31, 2018, the amounts overdue as on September 1, 2017 and payments due between September 1, 2017 and January 31, 2018, be allowed by banks and NBFCs to be paid not later than 180 days from their original due date, without a downgrade in asset classification,” the RBI said.

RBI noted that the formalisation of business through registration under GST has adversely impacted cash flow of the smaller entities during the transition phase. Since then, MSMEs have faced difficulties in meeting their repayment obligations to banks and NBFCs.

“The forbearance allowed to MSME borrowers, broadening the definition of priority sector lending and simplification of repo directions among others are all positive steps towards a stable macro environment,” said Rajnish Kumar, chairman at SBI.

Asset quality in the segment worsened due to demand side pressures and liquidity issues after demonetisation. Over the course of fiscal 2017, gross nonperforming assets across lenders only in the MSME segment increased by 70-100 basis points. With GST compounding the challenges for MSMEs, especially the unorganised lot, the overall asset quality picture will likely deteriorate before getting better.

The RBI also said it was doing away with loan limits of Rs 5-10 crore per borrower in the MSME segment. Under the new regime, all bank loans will qualify under priority sector without any credit caps.

“The forbearance given to MSMEs supplements the favourable tax treatment accorded to this segment in the Union Budget,” said Dinabandhu Mohapatra, MD & CEO at Bank of India.